Humber/Ontario Real Estate Course 3 Exam Practice

When a buyer is pre-approved for a mortgage, what must still occur before final approval?

1. The buyer must choose a property and obtain an appraisal.

2. The buyer must pay an application fee to the lender.

3. The chosen property must be approved by the lender.

4. The buyer needs to secure homeowner’s insurance.

5. The buyer must sign a mortgage commitment with the lender.

6. The buyer must undergo a final credit check from the lender.

The correct answer is: The chosen property must be approved by the lender.

When a buyer is pre-approved for a mortgage, this step indicates that they have undergone an initial evaluation based on their financial situation and are ready to move forward with purchasing a property. However, final approval hinges on additional factors that include the specific property the buyer intends to purchase. The necessity for the chosen property to be approved by the lender comes from several considerations. Lenders need to ensure that the property meets certain criteria and that it serves as adequate collateral for the mortgage loan. This often involves a property appraisal to ascertain the market value, as well as a review of the property's condition and any relevant issues that may affect its value (like location, zoning, and potential environmental concerns). While other factors such as homeowner's insurance, final credit checks, and mortgage commitments also play important roles in securing a mortgage, the approval of the property by the lender is a critical step that must occur after pre-approval and before final approval. This ensures that the lender's investment is safe and that they are willing to finance the specific property chosen by the buyer.